ATTORNEY FEE DEFERRALS
In the 15 years that our team has partnered with plaintiffs’ attorneys, we’ve come to appreciate the challenges inherent to contingency fee practices. You already insure your practice and manage your aftertax income, often with the help of a trusted advisor. In this guide to attorney fee deferrals, we demonstrate how you can leverage the third component to a solid wealth-building approach: customizing a pre-tax strategy to work for you, your business, and your family. Remember, the most important player on your financial team is you. The second largest stakeholder is the IRS. Choosing when to pay them gives you the power to effectively design your stream of income, plan for retirement and build wealth. A smart, savvy attorney has this tool in their comprehensive wealth management plan. You will see that our strategies are flexible and designed for this century, with cash access features that are unprecedented. We’ve learned that making the investment in yourself can be the hardest decision to make, and yet the most rewarding. Beginning or renewing a disciplined wealth accumulation approach, no matter the size of your fee, starts you on the right path. Your life, your wealth—one fee at a time.
John Bair Founder/Member
Who We Are Milestone Consulting is a comprehensive settlement planning and management firm. We believe that injured plaintiffs and their families deserve strategies designed to ensure a lifetime of financial security.
We also believe that the attorneys who represent these plaintiffs want innovative financial solutions with an eye on long-term wealth accumulation.
Our team of consultants provides contingency fee attorneys with 21st-century strategies to help you get closer to your goals.
Skilled investors need intelligent solutions for long-term wealth accumulation. Our attorney fee deferral strategies are not for the short term. The most disciplined investors value plans that mitigate risk and maximize benefits. Our strategies combine the best of both worlds.
Milestone has pioneered three new alternatives for you.
Milestone has pioneered three new alternatives for you, the contingency fee attorney, that leverage your unique opportunity to create unlimited reserves of deferred compensation. All of our plans are designed to involve your trusted financial advisor in the creation, design, and implementation of your tax deferral strategy.
Childs v. Commissioner1 In 1996, the 11th Circuit affirmed the 1994 Tax Court’s ruling in Childs v. Commissioner (103 T.C. 634). The Court ruled that: »» Attorneys involved in tort cases under contingency fee agreements have the unique opportunity to receive their fees in the form of periodic payments. »» Attorneys may elect to defer all or a portion of their fees. »» Fees included in the structure will not be taxed until the year(s) in which they are received. Internal Revenue Code Section 409A includes an express carve-out allowing for the deferral of attorney fees. IRS Notice 2005-1, 2005-1 C.B. 274 provides further guidance on this application of § 409A. 1
Tax planning is a foundation for wealth building. This basic principle should reside at the core of every attorneyâ€™s wealth strategy.
PRIVATE WEALTH PORTFOLIO Are you already working with a trusted advisor? Our assignment companies, United States Periodic Payment Assignment Company (USPPAC)1 and Global Periodic Payment Assignment Company(GPPAC)2 provide you with the opportunity to build a tax-efficient, deferred income contract in collaboration with your current advisor.
Incorporate tax deferrals within your existing wealth management strategy. How Does It Work? Within the context of your existing financial plan, we create taxdeferred investments through our assignment company. Our team will work directly with you and your trusted advisor(s) to create and jointly administer your account.
Advantages »» Transparent approach includes direct coordination with your current advisor(s) »» Participation in the market on an unlimited, tax-deferred basis »» Open architecture gives you the ability to invest in any listed security or investment »» Becomes an extension of your existing wealth management strategy
Considerations Much like traditional investing, you have control over the design of this plan, but also assume the investment risks. Our wealth management company, Monolith Advisors3, will work directly with your advisor to create the plan that fits your needs.
United States Periodic Payment Assignment Company (USPPAC) is an independent assignment company formed in accordance with Section 18-201 of the Limited Liability Company Act of the State of Delaware. 1
Global Periodic Payment Assignment Company (GPPAC), an independent assignment company, is domiciled in Barbados, West Indies and operates subject to Barbadian government approval. Transactions conducted by GPPAC are regulated and governed by Chapter 77 of the Law of Barbados’ International Business Companies Act. Banking procedures are conducted through Royal Bank of Canada/Scotia Bank. 2
Monolith Advisors LLC is a Registered Investment Advisor firm, registered with the U.S. Securities and Exchange Commission in accordance with the Investment Advisers Act of 1940. References to Monolith Advisors LLC as a registered investment advisor, or any reference to being registered, does not imply a certain level of skill or training or an endorsement by the Securities and Exchange Commission. 3
PERMANENT WHOLE LIFE INSURANCE The most groundbreaking option relies on one of the greatest existing wealth accumulation toolsâ€”permanent whole life insurance. By becoming a policy holder in one of these large mutuals, you reap the benefits of their financial strength and dividend paying histories4.
Where else have you seen historical dividends of 6% or greater? 5
How Does It Work? In family offices around the world, affluent families already recognize and leverage permanent life insurance as an asset class. This approach combines the tax-deferred nature of the traditional periodic payment with the workhorse in traditional wealth accumulation. Your funds are used to purchase an annuity, which is then invested in a permanent whole life insurance policy.
Advantages »» Benefit of dividend paying histories »» Immediate death benefit coverage can replace term premiums for partnership buy/sell6 »» Pretax cash accumulation via the nation’s strongest dividend-paying mutuals »» Access to cash without triggering taxation »» Flexible distribution to be used in conjunction with traditional estate planning/ philanthropic objectives.
Considerations While this plan requires patience and careful planning, it significantly outperforms fixed annuity returns. It is a long-term wealth accumulation strategy designed for those who aren’t saving enough, or aren’t on track to meet their accumulation goals7. The short-term internal rate of return yields are low, but contract years 11-20 credit at greater than 6%8. Historical wealth accumulation and wealth transfer strategies provide the best opportunities for long-term rate of return.
Insurance product guarantees are backed by the financial strength and claims-paying ability of the issuer.
These amounts are based on illustrations and are not guaranteed. They include dividends, which are subject to market fluctuations and the performance of the insurer. 5
Death benefit included in decedent’s estate tax return.
This plan requires medical underwriting. Applicant is subject to insurability testing.
Based on 2013 market trends.
TRADITIONAL ANNUITIES with a game-changing improvement Looking for a more tried-and-true strategy? This approach has been allowable since 20089, but has been cost-prohibitive until now. No longer limited to the eight basic structured annuity options, this platform relies on the inherent advantages in the marketplace of annuities. All regular competitive annuities are available to back the obligations of this concept.
Leverage tradition, with a distinctly next-generation design. How Does It Work? Your fees are used to purchase an annuity, which provides you with guaranteed income at regular intervals. Your plan is flexible; lump sum payments can be designated for major life events such as home purchases, college, and retirement.
Advantages »» Straightforward, simple design »» Insurance companies guarantee return of principal10 »» Flexible in design »» Equity participation in S&P 500 or another benchmark index11
Considerations Fortunately, plans can be designed to allow for a 1035 exchange to contracts yielding higher interest rates or contracts with equity participation. While this strategy has a flexible design, its implementation is more rigid than the other options. Statutory commissions that are front-loaded make it impractical for short-term deferrals; its value lies in its long-term potential.
Pursuant to claims paying ability of the issuing insurer.
Indexes may include S&P 500, Barclays, and Russell 2000.
This concept has been designed for you. Isnâ€™t it about time?
Whether your goal is to… Build wealth with less risk Accumulate for the next generation Fund philanthropic pursuits ….negotiating smart accumulation tactics and leveraging sound tax deferral investment strategies will make achieving your goals easier
Get where you want to go financially.
By taking advantage of an attorney fee deferral, you could achieve: »» Tax-deferred growth »» Flexible plan options »» Lower tax bracket »» Reduction in tax obligation over time »» Protection against loss of principal »» Predictable source of future income
One of the single most powerful marketing tools to a trial attorney is sending a check to a referring attorney. Consider their tax position too!
Protect your tax deferral in referral… We understand that the tax implications and tax planning strategies may not be the same for both sides of a referral—sometimes your referrals come from attorneys who have profoundly different law practices. Perhaps the referring attorney runs a labor law practice, and isn’t aware of the tax deferral opportunities for personal injury cases, or maybe your firm has referred a case to an attorney who has never taken advantage of a fee deferral. Regardless of what side of the referral you’re on, make sure you leverage the tax deferral opportunity. We’ve got you covered.
Scenario 1 Did another firm refer a case to you? Offer this idea to your best referral sources as a differentiating point. By recognizing that they might want to take advantage of this opportunity, you personalize the relationship and differentiate yourself from your competition.
Scenario 2 Have you referred a case? Let the firm handling the case for you know that you want to preserve the right to create deferred compensation for yourself or your firm as a contingency fee for the referral. If they donâ€™t know how, weâ€™ll guide them through it.
Do these strategies only apply to large fees? Can I accumulate using $25,000 at a time? Whether you have a $25,000 fee or a $250,000 fee, you can still use these strategies for long-term wealth accumulation.
Is there a limit to how much I can defer in one year? No, there is no limit.
What risk, if any, am I taking with the IRS? Per the Childs v. Commissioner (103 T.C. 624) ruling, contingency fee attorneys can elect to receive their fees in the form of periodic payments. This practice is recognized and has not been contested by the IRS since 1996. In 2004, the IRS issued Notice 2005-1, which provided comprehensive guidance for tax treatment of service providers detailed in Section 409A of the Internal Revenue Code. Notice 2005-1 excludes most service providers (including attorneys who are eligible for fee deferrals) from Section 409A. In 2008, the IRS released Private Letter Ruling 150850-07, which provided guidance on the proper federal income tax treatment for certain periodic payments.
What assurances do I have if I create a deferred income contract with USPPAC or GPPAC? Pursuant to the assignment contract, in the unlikely event that the owner becomes insolvent, assets of obligation transfer immediately to the attorney/taxpayer.
Why is GPPAC based in Barbados? Because of adverse tax conditions in the United States, it is preferable to use a non-qualified assignment company for certain periodic payments. The tax treaty between the United States and Barbados allows for this type of transaction, and has been capitalized upon by such national companies as Liberty and Allstate.
Do I have to pay taxes on the money invested in an attorney fee structure? Pre-tax funds are placed in the attorney fee structure. Taxes are payable when payments are received. This benefits you whether you are trying to achieve a lower tax bracket or build wealth pre-tax.
It always seems as though I need the fee to run my practice—can I afford to tie my money up in one of these strategies? Start small. You can elect to defer either a portion or the entirety of your fee—whatever makes the most sense for you and your practice.
Can I elect to do a fee structure if my client takes a cash settlement? In most cases, you may structure your fees regardless of what your client decides to do.
At what point do I need to decide? You must elect to structure your fees prior to settlement; it must be included in the settlement agreement. You can’t have constructive receipt of the money to be structured. It should be paid to the life insurance company via an assignment company.
Is an attorney fee structure flexible? Yes. You should choose a plan that best fits your individual needs—for example, you can have period certain for a defined period of time with a future lump sum payment or if it works better for you, you could take a series of lump sum payments.
I’m part of a large practice with multiple equity owners. Can I still participate? Yes, you can still structure your fees, even if you weren’t the sole plaintiffs’ attorney on the case. The stream of payments can be split among more than one attorney. Should more than one decide to structure, each gets their own unique payment schedule. It is not necessary for all to decide to structure; each can decide for him/herself.
Can I offer this to my associates or non-equity partners as part of my retention strategy? Yes, you can offer this opportunity to your associates and/or non-equity partners.
How are payments made? Payments can be made either to you or to your firm. Fee payment can be affected by a number of factors, including the type of incorporation the firm has (e.g. LLC, PC, etc.), dissolution plans of the firm, tax advantage, etc.
Contact us today to create wealth for tomorrow. TOLL-FREE 855-836-2676
JOHN BAIR Founder/Member firstname.lastname@example.org
Your life, your wealthâ€” one fee at a time.